Currency War

by Lawrence B. Lindsey

  “Mr. Chairman, I have Secretary Steinway on the line.”

  “Perfect timing, George,” Ben said, picking up. “I just got off the phone with Governor Li.”

  “Calling to offer a make good on your last trip to Beijing?” asked Steinway.

  “As it turns out, yes,” Ben said. “The reason I’m calling is to schedule the inevitable debriefing—”

  “Let’s call it a briefing,” interrupted Steinway. “The President has asked me to organize one for him on your trip to China. Peggy has already confirmed one o’clock.”

  Ben glanced at the analog clock on his wall. Washington moved fast, and there was no tolerance for creature comforts such as hangovers or jet lag.

  To Ben’s non-answer, Steinway continued. “I know you’ve been through a lot in the last couple of days. And I know there are details that didn’t come through the usual channels, so we all want to hear more. It will be you, me, the President, and Hector Lopez. We each have an interest in how this will play out.”

  Ben perked up at the mention of Hector’s name. Lopez was the director of the Central Intelligence Agency. He found himself thinking that perhaps Bernadette was right when she searched his luggage. It was one of those spy games moviegoers thought was fiction but was uncomfortably close to reality. Also telling was who was not invited to the meeting—neither the Secretary of State nor the Secretary of Defense. The way Washington worked, those omissions ruled out the President thinking that this situation was to be handled through normal diplomacy or something that might lead to a more conventional—and deadly—confrontation.

  He said, “Thank you, George. I hope that having Hector at the meeting will eliminate the need to for a normal debrief with some CIA staffer.” One of the things that irritated him was the need to deal with low-level officials when there was so much else to do.

  “Technically, that’s up to Director Lopez. But I’m sure he’ll see it your way. He knows your time is particularly precious.”

  “Supply and demand,” Ben said. “Makes slaves of us all if we’re not careful.”

  “Spoken like a true central banker,” said Steinway. “See you at a quarter ‘till.”

  “Always,” said Ben. After he hung up, he paged Peggy and asked her to fire up the Nespresso machine, hoping one of those magical pods would have enough caffeine to get him through the next couple of hours.

  * * *

  Ben stopped at the first of two security checkpoints three blocks away from the basement entrance to the West Wing of the White House. Even the car of the Chairman of the Federal Reserve had to be sniffed by dogs and scanned by the underground cameras at the entrance to make sure there were no bombs attached. The risk was not from the Chairman or his drivers, but that someone had attached something to the car along the way.

  Ben’s limousine had been part of a motorcade with two side vehicles, an SUV in front and one in back. They broke off as soon as he entered the security perimeter. His driver pulled up at the awning that reached out from the entrance of the basement entrance to the edge of West Executive Avenue. The presidential seal was affixed to the end of the awning. Ben waited, marshaling his thoughts as the guard at the desk, the well-hidden metal detectors, and the cameras did their jobs. Like everyone else, he had to lock his cell phone in a bank of cubbyholes that resembled the old-fashioned mailboxes in a rural post office.

  When the guard waved him on, he ducked quickly to the left and passed an elevator to head for the stairs up to the main floor where the Oval Office was located. Ben was a habitual user of stairs and on some days the climb was the only exercise he got. Then a right down to the corner where the chief of staff’s office was located, a left past the Roosevelt Room and on to the official entrance to the Oval. Finally, he reached the office of the President’s secretary, through which meeting attendees entered.

  Ben joined Secretary Steinway and they stopped to wait their turn. He thought it odd that Hector Lopez wasn’t there yet. There was no rush at this point. While protocol said it was inexcusable to be late for a meeting with the President, the President could take his time if he needed it. Even Cabinet members and Fed Chairman had to wait their turn. As the saying went, you might wait on the boss, but the boss won’t wait on you.

  After two minutes of the usual chit chat, Alice, the President’s personal secretary, said the magic words. “The President will see you now.”

  The door to the Oval Office opened to reveal that Lopez was already with the President. A private meeting before the general meeting? Ben thought. That’s odd. This was a matter of etiquette and a signal to be closely watched. When supposed equals go to a group meeting with the President, the appearance that some were more equal than others was disconcerting. But Lopez was a professional, a man who’d paid his dues and moved up through the ranks of the Agency, so Ben was not too worried. Still, it was not as if the CIA never played interagency politics.

  The President interrupted his reverie with a warm handshake, putting his arm on Ben’s uninjured shoulder and saying, “How are you, Ben?” His brow furrowed in deep concern.

  “I’m fine, Mr. President. It was just a flesh wound.”

  The President led Ben to the standard seat of honor. Presidents may have many different personalities, but they always arrange the Oval Office the same way. It was built that way. The President sits in a chair in front of the fireplace, facing the Resolute desk. Two couches flank the President’s chair with the person intended to lead the briefing on the couch to the immediate left of the President. The other attendees sit on the opposite couch where they can most easily observe the briefing and participate as necessary.

  “You’ve had quite a trip,” said the President. “We’ve all read the details, but I’d love to hear them from you personally.”

  Ben went into his story, describing the level of violence he saw, the worry that Li had projected, and a bit of an apology. “I know it is a breach of protocol and security to be flown home on a military jet from a foreign power, much less a hostile power. But the Chinese wanted me out of there as quickly as possible. I wasn’t in the mood to stick around, either. I was told that our ambassador had been notified in advance.”

  “After events like these, nobody is going to question that,” said the President. “But aside from the obvious, why would the Chinese want you gone so quickly?”

  “Sir, the Chinese are far more desperate than I ever imagined,” Ben said. “This was not a run on one bank. This was a run on all the banks I saw in that neighborhood. I’ve been trying to find news about it, which is hopeless, but I’m assuming if this was happening in Beijing, the scene was repeated throughout the country.”

  “So what made this unique? What possessed you to get out of the car for this?”

  Ben ignored the latter half of the question. “When you look at situations such as the Greek crisis, people lined up at ATMs in an orderly fashion. This was pushing and shoving to be the one to the ATM first and pounding on the doors of the banks. These people have no confidence in the most fundamental part of the economy—the money.

  “This was not happening in some remote industrial city. This was Beijing. It’s the place that is pampered by the state and always given first priority. If the public is worried there, they are even more worried elsewhere in the country. Also, shows of force only happen in Beijing in extreme circumstances because everyone knows it when it happens. A police action somewhere in Szechuan province is like a tree falling in a forest when nobody is there to hear it. All eleven million residents of Beijing, including the Central Committee and Politburo, have had this rubbed in their faces. These are increasingly desperate men.

  “Governor Li said something interesting to me on the phone. ‘Most politicians think desperate times require desperate measures. We central bankers know that desperate times require calming measures.’

  “I don’t think the political leadership is going to let Li have the time he needs to play their cards in the best way. In the long run, this is
an advantage for us. In the short run, I am worried about things getting out of hand. I think we have a need to prepare soon.”

  The President said, “When you say ‘desperate,’ what exactly are you talking about?”

  “Well, we know two things about the Chinese leadership. First, they are still marching toward global supremacy under the China 2049 program. They are particularly driven due to the humiliation Trump inflicted on Xi during the trade war. Second, we know that hubris is almost an infectious disease in anyone who occupies the seat of power in China. Emperors thought of themselves as ruling the Middle Kingdom for a reason. They saw China as surrounded by vassal states. Overreach was a common practice.”

  “What will all this lead to?” the President asked.

  “Mr. President, Churchill said watching the Soviet Union was like watching a riddle wrapped in a mystery inside an enigma. China is no different. I have learned two things from Li. He stressed the importance of the people of China coming to treasure the yuan as much as they treasure gold. See, the dollar is backed by the full faith and credit of the United States government. However, nobody has full faith in the government of Beijing. That is why they have been accumulating so much gold over the last ten or fifteen years. I think they are moving toward a gold-backed currency.”

  “You’ve got to be joking,” said the President. “Nobody’s on the gold standard now. It’s been decades since it’s been used.”

  “And the last time it was put into play,” said Steinway, “was what? Churchill, post-World War One? And when he did, it was such a catastrophe that it set his career back by a decade.”

  “And won’t that limit what they can do with their currency?” the President said.

  “Sir, that is exactly the point of gold.”

  “Ben, I don’t get your meaning.”

  “People choose gold because it limits the government’s ability to do something with their currency. Don’t ever quote me on this, sir, but money is the biggest and oldest Ponzi scheme on Earth.” Ben could see the look of shock and disapproval on the President’s face. Steinway, by contrast, seemed to grasp where Ben was headed.

  “Here’s how it works, Mr. President. You want to spend money on some government program. There aren’t enough tax receipts to cover the cost. So you ask George to issue some debt and he calls me up and says, ‘How’d you like to buy some bonds?’

  “Now, in reality, it doesn’t happen like that. It goes through banks and other intermediaries, but that is the essence. In the end George prints a piece of paper, a government bond, and swaps it with me for another piece of paper we call money. The Treasury is then free to spend that money on the government program.”

  “But isn’t something backing that money?” asked the President.

  “Yes. The government bond.”

  “The one that Steinway printed?”

  “That’s right.”

  “So what stands behind the government bond?”

  “It’s called the full faith and credit of the United States. A better name would be the unlimited taxing power of the government.”

  The President pondered this. “You mean the only thing that stands behind money is the ability of the government to take it back from the people who hold it through taxation?”

  “Yes, but it never quite comes to that. There is something else—the willingness of someone to accept the money in return for goods and services. It started with the government. It had the money and gave it to someone to get what it wanted. That person took the money because they knew they could turn around and give it to someone else in return for something they wanted. And that person knew they could spend it as well. That’s the Ponzi scheme. The real value of money is the ability to buy things with it.”

  The President took it all in. “That’s how we got through the pandemic in the early 2020s. We issued bonds, got money, and then handed it out to people in stimulus checks.”

  Ben nodded. “And we did that year after year until what happened?”

  “Inflation,” said the President.

  “Yes. But what happened psychologically was that people came to distrust the value of the money in terms of its ability to pass it off to someone else. They demanded more and more money for each thing they sold. Confidence began to drop. And those bonds that the Treasury were issuing also began to be questioned. People demanded higher and higher interest rates on the bonds. Finally, the Fed and the government had to call a stop. It ended with a painful recession, but that was necessary to preserve confidence in the dollar. This has happened all through history, all the way back to the Ming Dynasty in China. Remember, the Chinese are credited with the invention of paper money.”

  “And all those excesses let the Chinese gain on us,” the President said. “Because they didn’t print as fast as we did.”

  “Until recently,” Ben said. “The current Chinese regime is impatient and started going too fast. They wanted to push themselves into the global leadership position well before their 2049 target date. They revved up their money machine to do it. They pushed their banking system—particularly the state-owned banks, which are a big part of their money operation—to lend freely to expand the economy. Pushing out all that money haphazardly meant a lot of the loans went bad. At first the government just printed more money, but then the public figured out the game. That is how their bank run started.”

  “Where does gold come into the picture?” asked Steinway.

  “The Treasury and the Fed can print money freely. So can the People’s Bank of China and the Chinese government. It’s just too easy. Governments do it to excess. Financial crises happen, and the confidence in the money collapses.

  “The only way to restore confidence is to have money become something the government can’t fiddle with. From the beginning of human history that has been some form of precious metal—often silver, but usually gold.

  “This goes right back to your initial point—what government would use gold when it would limit what they can do with their money? They go to gold because they have so abused paper money that the people lose confidence. They want something that the government can’t monkey around with.”

  “If they do this,” Steinway said, “if they’re successful at it, what does that mean for us?”

  Ben sat back in his chair. “Our discussion was always in terms of a conflict between our two countries. This means that accumulating the gold is not just to gain the confidence of the Chinese people but is intended as a potential weapon to be used against us. Make no mistake, Li is totally on board with making China the world’s only superpower. But he thinks of it as the superpower in a prosperous world. Some of his colleagues think of China as a superpower dominating impoverished vassal states.”

  “So how would they use it as a weapon?” asked the President.

  “We both have the same problem,” Ben said, “it is just a matter of degree. If the world somehow gains confidence in the Chinese yuan, then they may go to it as the world’s currency of choice. That gain is at the expense of the dollar. Now all those dollars out there in the world are backed by our bonds. If folks don’t want our dollars, then they won’t buy our bonds, and Steinway is shit out of luck trying to sell them.

  “The U.S. government then has a financial crisis on its hands while the Chinese have smooth sailing. They are accumulating gold to make their play at turning the yuan into the world’s preferred currency.”

  “Then they run the Ponzi scheme and we don’t?”

  “Precisely.”

  “Gold is all about confidence then,” said Steinway.

  “Exactly. When people stop trusting government with doing the right thing, they will only have confidence in something the government can’t manipulate.”

  “For better or worse,” said the President.

  “And that,” said Ben, “depends on our response to this situation.”

  * * *

  By the time 5 p.m. rolled around, Ben was exhausted. Since the meeting with POTUS,
he had either been on the phone with Steinway or Lopez or had his nose in Microsoft Word and Google. On top of all this, the last dregs of jet lag were catching up with him. So a little after five he told Peggy he was calling it a day and told her not to stay too late.

  On the drive home he tried to do what he did best: synthesize information. But his physical and emotional exhaustion had pushed him to his limit, and it was all he could do to keep the names Li and Lopez separate. A few minutes into the drive he gave up and told the car to play what was in the CD player, and he let the original Broadway cast of Meredith Wilson’s The Music Man escort him home.

  When he finally arrived, he was happy to see Bernadette waiting for him in the kitchen with two jiggers of his favorite bourbon. She sat on the granite countertop inside of her big robe from the upstairs bathroom, sipping on her own measure. A serious look on her face, she picked up one of the jiggers and held it out to him. As he closed in to take it from her, she moved her hand back until he was right against her.

  “Does this mean I’m forgiven?” he asked as she relinquished the drink.

  “I should kill you, Ben Coleman, for the hell you put me through these last few days.”

  He sipped the bourbon. “I think I’ve already expressed my regret and remorse over my actions.”

  “Hector Lopez sent someone to the door to talk to me. Did he tell you that? They’d gotten word about the Beijing riot from one of their sources, and when you weren’t on your flight, they did the math. ‘Mrs. Coleman, we’re adding up two plus two here, and we’re praying that it doesn’t add up to four.’ ”

  “Darling, I am really, truly sorry.”

  “That’s not enough. I’m going to have to kill you.”

  “You’ll never get away with it. I have too many friends in high places.”

  “I’ll find a way to make it happen.” She finished her drink.

  He finished his first drink, put the glass down, and put his hand inside her robe. “And how to you propose to do that?”